The Declining Rate of Profit – Who cares?
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I thought this was quite an interesting article, countering those who have a rather deterministic belief in what causes crisis. The title is a bit misleading since he addresses the rate of profit, not actually profit. I think it should be taken for granted that a capitalist is very concerned about whether a profit exists or not! The fact is that some Marxist do treat Marxism as a dogma. We can dot the i and cross the t but i think unlike the need to challenge some economic concepts, others can be safely ignored as an irrelevancy to politics and it is political economy that concern us.
I be grateful if someone can explain what practical application the TDRP has or the consequence of rejecting it. I have always simply assumed that it was some sort of theoretical justification for the inevitability of capitalism's end. But either way how does acceptance or rejection affect our propaganda and activities? Anyone care to put me wise?
Actually, despite the polemical tone, I think Michael Yates has a point: the so-called law of the tendency of the rate of profit to fall is not that central to Marx's analysis of capitaism. But he is wrong to state that it was Marx who "discovered" it.That capitalism would eventually reach a stagnant state due to the rate of profit falling too low was a common assumption of economists of his time and before. Both Adam Smith and David Ricardo held this view. Ricardo attributed it to an external factor (diminishing returns from agriculture). Marx was trying to offer an explanation internal to capitalism, i.e. the rise in the proportion of capital invested in machinery and plant compared with that investing in employing labour-power.If Yates's opponent was arguing what he says they do then they are wrong. For instance:
Quote:Put simply, my accuser is certain Marx demonstrated that as capitalism develops and businesses succeed in expanding their production, they discover, against their will, a falling rate of profit on their invested capital. The resulting decline in profitability is the cause of economic crises, as businesses refuse to make investments at the lower rate, resulting in a reduction in their workforces, reduced consumer spending, and so forth. The “tendency of the rate of profit to fall,” is, according to its adherents, the fundamental “law” of capitalism, the central star around which everything else revolves.I don't know if this is what his "accuser" does actually argue (because he does identify who they are), but I don't think this is a realistic theory as to why capitalist crises occur. Of course, since capitalism is a system driven by the search for profits, what happens to the rate of profit is important, but the question is: does the rate of profit fall because of the smaller and smaller proportion of capital invested in employing workers? Even if it did, this would be a (very) long-term trend which could not explain shorter fluctations such as govern the capitalist boom/slump cycle.Yates makes a good point here:
Quote:Will the inevitable economic crises bring forth rebellion and revolution? History doesn’t give us much reason to be optimistic. Will the crises deepen, each one worse than its predecessor, ultimately making life so unbearable that the exploited masses rise up in fury, destroy capitalism, and set about building a socialist world? Again, reality provides little comfort to those who think that this has been the case or will be someday.This has been a subject of discussion in the party, but I think we've learnt the lesson that an economic crisis is not necessarily the best condition for the spread of socialist understanding. I remember a discussion some years at Conference as to whether economic crises get worse and worse or not. After the tenors had presented the case for and against a delegate got up and said that it didn't make any difference either way as far as the case for socialism is concerned. Perhaps that answers Alan's question.Yates mentions another possible scenario that might favour the growth of socialist understanding:
Quote:Today, it seems more sensible to think that the expansion of capitalism into every part of the globe and every aspect of our lives will sooner rather than later generate a catastrophic environmental meltdown. This is the crisis that is most likely to happen, profit rates notwithstanding. Whether it will be the catalyst for revolution is anyone’s guess.Who knows indeed? But this would be a return to the sort of explanation offered by Ricardo: something outside capitalism's operation as an economic system, in fact, back to "diminishing returns" from agriculture (nature) again.Incidentally, I wonder whether Yates's accuser isn't Andrew Kliman who is a vigorous critic of the politics of Monthly Review?
alanjjohnstone wrote:I thought this was quite an interesting article, countering those who have a rather deterministic belief in what causes crisis. The title is a bit misleading since he addresses the rate of profit, not actually profit. I think it should be taken for granted that a capitalist is very concerned about whether a profit exists or not! The fact is that some Marxist do treat Marxism as a dogma. We can dot the i and cross the t but i think unlike the need to challenge some economic concepts, others can be safely ignored as an irrelevancy to politics and it is political economy that concern us. I be grateful if someone can explain what practical application the TDRP has or the consequence of rejecting it. I have always simply assumed that it was some sort of theoretical justification for the inevitability of capitalism's end. But either way how does acceptance or rejection affect our propaganda and activities? Anyone care to put me wise? http://www.counterpunch.org/2013/12/31/profits-may-rise-profits-may-fall-the-capitalist-system-doesnt-care-at-all/Marx did not say that it was an iron law, he said that it was a tendency. He took it from David Ricardo. it was not invented by Marx, It is the same errors committed by several communists and rightwingers who are saying that Capital is the book of communism, Capital is a critic to the capitalist political economy.Some of these critiquer are falling in the same errors of Luxembourg, who trying to discover the 'errors" of Marx in volume 2 of capital, or tying to question what Engels did to volume 2 and volume 3, she fell into her own mistakes and fell in the trap of the collapsists
'Diminishing returns', I think, sums it up perfectly.
"I don't know if this is what his "accuser" does actually argue (because he does identify who they are)"http://monthlyreview.org/commentary/critique-heinrichs-crisis-theory-law-tendency-profit-rate-fall-marxs-studies-1870sThe article links to this exchange between Michael Heindrich, Fred Moseley, Guglielmo Carchedi and Michael Roberts, and Shane Mage which i have yet to read which is a bit too technical for a quick peruse. I don't think it was Kliman.
Jonathan Chambers wrote:'Diminishing returns', I think, sums it up perfectly.Falling profits = Dimishing returns, ha ha. But one point is that Ricardo was proved wrong about diminishing (physical) returns from agriculture. I'm sure he'd be surprised, if pleased, to find capitalism still going some 200 years after his death. Marx would too no doubt but not because he expected capitalism's economic mechanism to run down, but because he expected the working class would have acted to end it by now.
Marx overestimated the taking of class consciousness of the working class, but in his times that idea was justifiable, because they did not support capitalism as they do now
alanjjohnstone wrote:I be grateful if someone can explain what practical application the TDRP has or the consequence of rejecting it. I have always simply assumed that it was some sort of theoretical justification for the inevitability of capitalism's end. But either way how does acceptance or rejection affect our propaganda and activities? Anyone care to put me wise?No, the law of the tendancy for the rate of profit to fall properly understood is not an argument for the inevitable downfall of capitalism. There is not a single passage in Marx where he makes such a claim.The LTFRP does not mean that we should expect to see a forever downwards fall in profit rates. It can be seen as an indirect cause of crisis. When profit rates are low more businesses are prone to failure and so the likelihood of crisis is increased. When profit rates are high there is less chance of business collapse. Therefore we can expect a period of low profit rates before the onset of a crisis followed by a gradual restoration of them afterwards as business are able to buy capital stock at depreciated prices and so get more profit per unit of capital acquired. The more value that is destroyed / devalued in the crisis the more the rate of profit will be restored. This can be empirically observed.The LTFRP is central to the dynamic of capitalism in that competion requires individual capitalists to increase their investment in constant capital (machinery etc) and decrease in variable capital (labour power). But as labour power is the ultimate source of profit this leads to a fall in the proportion of capital that is profit creating. This trend is periodically overcome by the purging effect of crisis, the expansion into new markets and various other factors (see chapter 14 of Capital Vol III).So the LTFRP shows that crisis are inevitably built into the functioning of capital and to reject it would be to deny that this is so, as well as to accept the often levelled charge that Marx's theory of value is internally inconsistent (and therefore false).
ISTR Hardy on one tape discussing the decline of rate of profits as a very long run thing, there are plenty of causes (among those listed by Marx) which off-set it (that many of them are political, such as colonialism and taxation) suggests that a capitalist 'heat death' is only a sort of imaginary model, not a realistic possibility. of course, the political nature of the off-sets indicate how important it is as a trend, not an accomplished fact.There is still scope for non-capitalist accumulation (primary accumulation, or what I believe Harvey calls Accumulation by expropriation). Taxation and rent slow the decline down too (and I believe that is why, many years ago, IIRC, I explored rent seeking behaviour of capitalists in a standard article, also in my stuff about robots).
"Therefore we can expect a period of low profit rates *before* the onset of a crisis…" Just to clarify that the LTFRP cannot predict a crisis for i always assumed a cause of a crisis can only be assigned in retrospect…i.e we can only view the cause of a crisis in a rear view mirror as someone once put it.
mcolome1 wrote:Marx overestimated the taking of class consciousness of the working class, but in his times that idea was justifiable, because they did not support capitalism as they do nowI don't think that the 'working class', then or now, actually knew/know what 'capitalism' is. Most workers have no idea about the economic system within which they live and work.That fact is a condemnation of over 100 years of activity (sic) by Communists/Socialists. We are as irrelevent now as we were then.We can't even explain 'value' without telling people they have to read Capital (or even, god forbid, Hegel !).One fine day, Communists will resolve to actually explain to their fellow-workers what the fuck they're talking about.
LBird wrote:mcolome1 wrote:Marx overestimated the taking of class consciousness of the working class, but in his times that idea was justifiable, because they did not support capitalism as they do nowI don't think that the 'working class', then or now, actually knew/know what 'capitalism' is. Most workers have no idea about the economic system within which they live and work.That fact is a condemnation of over 100 years of activity (sic) by Communists/Socialists. We are as irrelevent now as we were then.We can't even explain 'value' without telling people they have to read Capital (or even, god forbid, Hegel !).One fine day, Communists will resolve to actually explain to their fellow-workers what the fuck they're talking about.
I did not say that the working class knew what capitalism was. The only thing that I know is, that the working class did not provide so much support to capitalism as they do now, and they did not have any fear against communism, as they do now. On volume one of capital Marx said that some sectors of the working class were reading it, and now most of the workers are reading comics books. In that epoch they used to say: Their capitalism, and now they say: Our capitalism
mcolome1 wrote:On volume one of capital Marx said that some sectors of the working class were reading it, and now most of the workers are reading comics books.I think that this is a myth, mcolome1. Don't forget, Marx also thought that he had written a book which was comprehensible to workers. Anyone who's tried to read the first three chapters of Capital knows that that opinion is incorrect. Most academics with years of philosophical, political and economic training can't make head nor tail of it. We Communists still need to make it accessible to workers.During the 19th century, many workers couldn't even read: some of my ancestors then signed their wedding certificates with a cross, because they were illiterate. As a young man, I never met anyone who had read any Marx, never mind Capital. In my opinion, more workers now know something of Marx, than in the past. It's still a very small percentage, of course, but far higher than in the 19th and throughout the 20th century. Most workers who had read Marx during that period where under the influence of Stalinism or Maoism, which both misinterpreted Marx to the point that their so-called 'Marxism-Leninism' was worthless, as the collapse of the Eastern Bloc showed. During the 1990 anti-Poll Tax campaign, I met 'Marxists' who argued that Ceausescu was on the right track, and that workers left to their own devices would just steal and destroy everything around them. Better to have continued to read 'comic books' than to believe this sort of anti-working class nonsense, comrade!Perhaps I would go so far as to say that, for the first time, Marx is on the agenda of workers (even though still far too few). But perhaps even that statement is wilful dreaming. We have a long way to go.
Casting my mind back, Capital was very low down on the recommended reading list. Hold up hands who have conducted a serious in depth reading of it rather than browse the easier historic bits. I know a few of you will have studied it but admit it – you remain a small minority of socialists and SPGBers and completing the book is like a merit badge for scouts – a badge of honour…but has it really helped your everyday political activity in any meaningful way?Number One to be read was the Communist Manifesto. Number Two was Engels Socialism Utopian and Scientific. Number Three and Four were Marx's economic pamphlets, Wage Labour and Capital and his Value Price and Profit. Then in popped Kropotkin's Mutual Aid at Number Five. I don't know anybody who ever claimed they were convinced to become socialists by reading Capital. In fact, i wonder if anybody ever became a socialist by reading Marx. Full Stop. (perhaps the odd anarchist…and he or she would be odd!)
alanjjohnstone wrote:I don't know anybody who ever claimed they were convinced to become socialists by reading Capital. In fact, i wonder if anybody ever became a socialist by reading Marx. Full Stop.Yeah, I think you're right, ajj. Most people become Communists because of influences from family and friends, I think.But I also think that to become a serious Communist one has to have some understanding of society and its exploitative structures, and the ideas in Capital can help, if they are explained in plain language. Reading chapters 1-3 is pointless without some help, IMO.I've tried a number of times (on LibCom and the ICC site) to try to do this, to build an explanation of 'value' in simple terms, but it seems to be frowned upon by those who claim to have understood Marx's ideas, that there should be an 'easy way' given to newer comrades rather than by the 'hard labour' they've obviously put in, over years, to come to an understanding.I find this attitude strange amongst Communists, who (one would think) would be keen to make it easier for others to become well-read Communists. But no… it seems to be 'if it isn't hurting, it isn't working' is the prescription.Dunno… perhaps it's just me…
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